Bulls go back to work Friday but after a substantial price run look more appreciative of some R&R rather than M&A entering the week. For the five day period the SP-500 (SPY) is up 3.75%, given birth to a brand new baby bull but one also “shouldering” some risk in the near-term. 

THE WEEKLY NUTSHELL 

• “Bullish Supports Finds “Follow-Through” to Downside for Moody Monday.” Bevy of updated and fresh M&A (PAR, MMM, GENZ, INTC) announcements and heavy week of economic data gets off to a good start on decent income and spending [0.2% match, 0.4% vs. 0.3%] report. SP-500 gives back virtually all of Friday’s rally attempt gains in closing off -1.47% but still holding the technical line of engulfing candle lows on “Day 2” of Follow-Through Day count.
•  “Not-So-Terribull Flat but Volatile Tuesday for Bulls and Day 3 of Count.” Out-the-gate market sinks on trio of disappointing data from Europe including 10% Eurozone unemployment, 1.6% CPI and less-than-jolly consumer confidence of -18. Stateside bulls rally quickly back in first hour on indigenous reports which include Case-Shiller Home Price Index beat of 4.23%, August consumer confidence of 53.5 and in-line Chicago PMI of 56.7. FOMC Minutes spur intraday swoon approaching -1.00% on policymakers seeing downside economic risks as somewhat larger than had been expected but in-step with “Bear-nanke’s” testimony last week. Bulls step back in with possible assistance of end-of-month window dressing to close majors mostly flat.
• “Follow-Through Wednesday for Bulls.” Substantial upside gap and trend push higher on stronger volume in SP-500 establish fresh FTD signal for bulls. Highlighting upside stampede, fresh monthly money injection and easing of economic concerns following in-line but relief-felt China PMI increase of 51.9, Oz’ better-than-expected GDP and stateside ISM expansion reading of 56.9 versus forecasts of 52.9 and July’s 55.5. “Mooyah!”
• “Thursday Follow-Through for bulls.” Generally good and well-received same-store sales (JWN, JCP, TGT, HD and KSS) for August, slightly better-than-expected weekly claims data with drop of 6,000 to 472,000, surprise 5.2% increase for August pending home sales versus flat consensus forecasts and continued M&A props with Burger King’s (BKC) $4.0B PE purchase and Hewlett’s (HPQ) raised $33 bid for 3PAR (PAR) and Dell’s (DELL) “Have it your way” acknowledgment as it ends negotiations.
• “Bulls Go Back to Work Friday.” Third day of strong but now technically extended gains to close week following surprising much better-than-feared decline of -54,000 August nonfarm payrolls versus estimates of -120,000, jump in private jobs to 67,000 versus forecasted 44,000 and aggressive cuts to July and June’s loss tallies. Intraday slightly worse-than-expected August ISM Service reading of 51.5 compared to 53 and July’s 54.3 allows for modest profit-taking excuse against backdrop of overhead resistance after three session / five percent run in SP-500 and VIX testing three month lows while putting together a near short-term stretch relative to 10SMA.

WEEKLY CALENDAR OF KEY UPCOMING EVENTS

Monday: US Market Holiday

Tuesday:
Economic: NA.

Earnings:  Casey’s General (CASY) in the AM expected to bring in earnings of $0.81 per share compared to year ago $0.87. Technically, shares sit in a near five-month long cup-shaped base at all-time-highs after forging a handle breakout last week.

After Hours: Navistar (NAV), Pep Boys (PBY) and Phillips-Van Heusen (PVH).

Other Notables:  Strong M&A activity of late sets stage for corporate headline support entering the week. Bulls will be looking for additional follow-through in price and sentiment of past several sessions and even further removed from recent double dip / recovery anxieties during rather light week for scheduled market moving catalysts.

Stubbornly bearish technicals in black gold (USO) and support positioning in iShares 20-Yr (TLT) for swing higher following fairly stiff three-day sell-off are likely canary tickers of interest for bulls.

Wednesday:
Economic: Weekly Crude data, Fed’s Beige Book, Consumer Credit (-$5.25B).

Earnings: Ciena (CIEN), Hi-Tech Pharma (HITK), Smithfield (SFD), Talbots (TLB), Utd Nat Foods (UNFI).

After Hours: Men’s Wearhouse (MW), Shanda Games (GAME) and Shuffle Master (SHFL).

Thursday:
Economic: Weekly Claims (470K, 4.44M), Trade Balance (-$47.2B). 

Earnings: Korn/Ferry (KFY), Piedmont (PNY) and Stewart Enterprises (STEI).

After Hours: National Semi (NSM) expected to show profits of $0.35 compared to year ago’s $0.13 per share. Technically, NSM is highly-correlated with Semi HLDRs (SMH). NSM and SMH sport intact downtrend with 50 and 200SMA resistance following successful test of weekly supports.

Friday:
Economic:  Wholesale Inventories (0.4%).

Earnings: Brady (BRC) and specialty athletic apparel brand Lululemon (LULU). Lululemon forecasted to grow profits from $0.13 per share to $0.24. Technically, LULU broke lateral supports into bear territory below the 200SMA over past two weeks. Currently, shares have rallied into testing position of potential resistance.

TECHNICAL PICTURE

Figure 1: ProShares Ultra S&P500 (SSO) Weekly

For bulls caught optimistically counting the days alongside the likes of this strategist in front of last Wednesday’s day four FTD or follow-through day, it was likely a nice week for long deltas and acknowledgment of the market morphing once more into a bull.

Entering Tuesday though, the easy gains for bulls, if we can ever really call them that, do appear riskier in the near-term. The sometimes menacing 200SMA overhead resistance line and still existing weekly “complex” right shoulder are both within 1% - 2% of current levels in the SP-500.

Of course, easily spied resistance lines and bearish patterns being overcome / pushed aside and turned into catalysts for further gains can be appreciated as reasons to maintain one’s bullish composure. But immediately in front of us, a three day price run of about 5.25% and lesser but nothing to sneeze at gainer of 3.75% are the kind typically prone to at least a bit of profit-taking.

Risk to long deltas in the short-term appears more likely as we enter the week with a sympathetic VIX flashing readings bordering on complacency. The market’s “fear and cheer” gauge fell 18% over three days to test its four-month lows while showing a “near” stretched differential of 13% when comparing the cash to its 10SMA.

Finally, there’s also that notoriously difficult calendar month of September to potentially contend with after a nice pre-holiday and non-laboring price run for bulls. In lieu of what’s been said, the next one to two to perhaps three days should prove telling of what last week’s bull is really made of as it relates to the intermediate picture.

MARKET LAB
Bullish Technicals

• PS Elliott sees W4 completion and EBOT buy signal weekly in SSO.
• Day 4 FTD on Wednesday signals “confirmed uptrend” low for majors.
• Leading growth stocks outperform during recent corrective phase in broader market.
• Anticipating 1 - 3 day constructive pullback / profit-taking to neutralize overbought conditions.

Bearish Technicals

• 1930 Bear Market Rally repeat states EW Intl.
• Worst Six Months calendar period.
• Fourteen-month old Bull Run and 10-Yr. anniversary mark of ATH top in broader market.
• “Sell in May and Go Away.”
• Death Cross Major averages.
• Weekly right shoulder SP-500 still intact and 200SMA, both within 1% - 2%.
• Seasonally weak September / October looming.
• Warning flag as VIX closes 13% below 10SMA into test of four-month lows.

Chris Tyler
Senior Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
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The information offered here is based upon Christopher Tyler’s observations and strictly intended for educational purposes only, the use of which is the responsibility of the individual.